Raiden Network - Ethereum's Path to 1 million Transactions per Second

Ethereum's solution to scaling is worth mentioning since I do cover EOS a great deal. Ethereum is developing the Raiden Network. To understand the Raiden Network, it is easiest to just understand the Lightning Network.

The Raiden Network is a system of payment channels between established, regular payment arrangements. Using encryption and the methodology of the lightning network idea, two parties can create a payment channel to handle their peer to peer transaction off-chain. This off-chain arrangement reduces fees, and reconciliation to the blockchain can occur afterward or periodically through their agreed arrangement.

In my view payment channels only works for businesses, and in most cases, B2B (business-to-business). The only business-to-consumer model I have seen for the lighting network design is micro payments for video streaming, but once such a video stream were reconciled to the blockchain, it would still cost the standard network fee, making the whole thing impractical today.

A Future of Not Owning Your Private Keys

If in the future, the only way to receive reasonable fees for Bitcoin and Ethereum will be to have your funds stored on a business website, willing to setup payment channels with others in the industry. We then have to conclude this will economically force people to keep more funds on 3rd party websites.

In a space where everyone has been advised to store funds on personal wallets, and have control of your private keys, every month that passes, this becomes less economical.

Payment channel fee reductions will just further incentive this behavior of keeping funds on 3rd party websites, rather than in private wallets.

Bittrex could create a payment channel with Coinbase, and both would experience drastically reduced fees, and once daily or even multiple times a day, they could settle the payment channel and reconcile it to the blockchain. When payments are being sent back and forth between two parties, the lightning network protocol makes a lot of sense.

For an individual user, sending a one time transaction to move their funds from a personal wallet to an exchange, they will not be able to use a payment channel. It simply will not fit that format.

I imagine, cloud wallets will be the solution, where the cloud wallet holds your funds, and they are able to conglomerate enough movement of funds to create a payment channel with exchanges such as Bittrex and Coinbase. This still means a loss of controlling your private keys, unless a solution is found.

My Preference is DPOS - (Bitshares / Steem / EOS)

The alternate solution is scaling on-chain, where users are able to keep full control of their private keys, without suffering drastically higher fees. This also has the advantage of making it very transparent to investors and other users, as to the actual network traffic occurring on a given blockchain, rather than moving all the transactions to black boxes, because blockchain is inconvenient for scaling.

I assert, blockchain is not inconvenient for scaling, but rather, developers have lacked imagination and innovation to resolve the core problem of scaling.

EOS aims to achieve 1 million transactions on the blockchain. With other technology and development choices, they believe businesses will be able to go much higher than that threshold.

I will say, though, that the market does not always favor the better method. In this case, however, EOS has many other advantages that the market will certainly favor. Even if Ethereum transactions per second get raised by moving it off-chain, on-chain will still remain limited, and also the on-chain block times are slow. EOS will give a sub 2 second response time. On-chain Ethereum will never do this.

Dash's Instant-X Architecture

It is also worth noting that Dash is scaling without moving transactions off the blockchain. InstantX is their technology to have masternodes confirm transactions in the space of time similar to credit card processing.

Their latest goal in this area, is to beef up their masternode system so the masternodes have minimum requirements in terms of response time, and hardware requirements. The goal here is very similar to the DPOS method, where you have a select group of decentralized servers that meet a specification threshold, so they are able to serve the entire network with fast response time and transaction speed.

Scaling On-Chain is Possible - Lazy, Unimaginative Developers are to blame here

Bitcoin and Ethereum have chosen a path, which in the future, may haunt them. LN, while a neat feature, it is not a true scaling solution. It also incentives their networks to behave poorly.

Increasingly, we have seen from both Bitcoin and Ethereum, that their protocols force more and more centralization, and now that their projects have both chosen this direction, we will also see more centralization of funds in the future, as well.

It's a recipe for a catastrophic event.